Nevada’s Quiet Cannabis Expansion

A Recreational Licensing Window Opens

The State of Nevada Department of Taxation is responsible for licensing and regulating recreational marijuana establishments in Nevada and has also supervised the state’s medical marijuana program since July 1, 2017. The Department regulates five types of marijuana establishments: cultivation facilities, distributors, product manufacturing facilities, testing facilities and retail stores (commonly known as dispensaries). Nevada has not reached its full capacity in terms of the maximum number of dispensaries permitted under state law. The Department is working to help Nevada reach that full capacity and is presently accepting applications for new recreational dispensaries. That ten-day application period began September 7 and is set to close on Thursday, September 20 at 5:00 pm.

Nevada law limits the number of recreational marijuana dispensaries per county based on population. The maximum number of recreational marijuana retail store license under Nevada law is 132 with Clark County having up to 80 stores, Washoe County having up to 20 stores and Carson City with up to 4 stores. The remaining counties in Nevada can have up to two stores each. The Department has indicated that it will issue up to 64 new recreational marijuana retail store conditional licenses on or before December 5, 2018. In August, the Department announced the allocation of the new licenses to each jurisdiction within each county and to the unincorporated area of the county proportionally based on the population. This allocation results in the following distribution of additional licenses: Unincorporated Clark County (10), North Las Vegas (5), City of Las Vegas (10), City of Henderson (6), City of Reno (6) and all other jurisdictions (1 or 2 each).

A Narrow Opportunity for Medical Expansion

Nevada law also limits the number of medical marijuana dispensaries per county based on population. Initially, Nevada was permitted to issue certificates for sixty-six medical marijuana dispensaries. As a result of minimal participation in the rural counties in 2014 when the first medical marijuana establishment certificates were issued, eleven certificates that were originally allocated to the rural counties were reallocated to Clark County and Washoe County. It is no secret that the rural counties in Nevada have been slow to accept marijuana sales. As a result, dispensaries are currently operating in only five of Nevada’s seventeen counties (Clark County, Washoe County, Nye County, Churchill County, and Carson City).

There is a narrow opportunity for expansion into the rural counties before December 13, 2018. This opportunity was created through Senate Bill 487 which passed during the 2017 legislative session allowing an incorporated city in a county whose population is less than 100,000 to claim one medical marijuana dispensary certificate. To date, both Fernley and West Wendover have taken measures toward allowing medical marijuana sales and have medical dispensaries underway. Without further legislative action, or an endorsement from an incorporated city in rural Nevada, the Department has issued the maximum number of medical marijuana certificates available in Nevada.

Municipalities Weigh In

Although the state has outlined an even allocation of recreational marijuana retail store licenses across the state, each individual municipality or unincorporated county has adopted provisions governing marijuana establishments that may prevent the proportional distribution of licenses. Over the course of the last week three municipalities have published notices to applicants seeking additional recreational marijuana retail store licenses. On September 14, the City of Henderson issued a statement advising that the Henderson Municipal Code requires that an establishment offering marijuana retail sales for recreational purposes be co-located with a licensed medical marijuana dispensary. This ordinance adopted last year by the City of Henderson effectively prevents the processing of any license application or conditional use permit for a new recreational marijuana dispensary in Henderson even if an applicant receives a conditional license from the Department.

The City of Reno and Carson City issued their own statements late Monday, September 18, advising applicants of similar restrictions in their ordinances. The City of Reno’s ordinance limits the total number of retail marijuana store licenses in the City of Reno to eight and four marijuana store licenses have already been issued. Thus the City’s code effectively prevents the processing of more than four additional retail marijuana store licenses, even if six applicants receive a conditional license from the State of Nevada following the current open application period. Carson City has an ordinance that requires that a marijuana retail store be jointly located with an existing medical marijuana dispensary in Carson City which effectively prevents a new recreational dispensary in Carson City from obtaining local approval absent a code amendment.

This information came as a surprise to some applicants who had submitted or were finalizing an application seeking one of the recreational marijuana retail store licenses allotted by the Department to these jurisdictions. The Department has advised that if any marijuana establishment has not received a final inspection within 12 months after the date on which it issued a conditional license, the establishment must surrender the conditional license. This means successful applicants have very limited time to resolve issues with regard to local ordinances that might prevent them from opening.

Fierce Competition

Under Nevada law, for the first 18 months of the recreational marijuana program, only existing medical marijuana establishment certificate holders can apply for a recreational marijuana retail store license. As a result, existing licensees are now competing amongst each other for one of the coveted 64 licenses in the first merit-based application process in Nevada since 2014. Many applicants are seeking licenses in multiple jurisdictions and it is expected to be a highly competitive process. The Department will rank the applications within each applicable locality for any applicants which are in a jurisdiction that limits the number of retail marijuana stores in order from first to last. The Department will issue conditional recreational marijuana retail store licenses, subject to final inspection and subject to local jurisdiction approval, to the highest ranked applicants up to the designated number of licenses the Department plans to issue.

While in many respects, the current application process is similar to the 2014 process, there are many notable differences. One significant difference is that an applicant is not required to have a lease or deed demonstrating a right to operate at a certain location. Additionally, in the current application process, no applicant may be awarded more than one retail store license in a jurisdiction/locality, unless there are fewer applicants than licenses allowed in the jurisdiction. Another key difference arises from the passage of Assembly Bill 422, which added diversity of race, ethnicity, or gender of applicants (owners, officers, board members) to the existing merit criteria for the evaluation of marijuana establishment registration certificates.

Beginning November 2018, any new application periods announced by the Department will open up the application process to those not holding an existing marijuana establishment certificate. However, it remains to be seen how many licenses will be remaining after the present round of applications concludes.

Melissa Waite, Member, Dickinson Wright, PLLC

Melissa Waite is a Member in Dickinson Wright’s Real Estate Department and practices in the areas of privilege licensing, business transactions and real estate transactions. She assists with licensing and regulatory compliance for businesses with liquor, marijuana, gaming and other privilege licenses. Melissa advises clients on emerging legal issues related to marijuana businesses and counsels marijuana establishments and ancillary marijuana businesses as to the nuances of Nevada law. In addition to her Juris Doctor degree, Melissa’s Masters of Business Administration degree uniquely positions her to counsel clients on, not only the legal requirements of starting a business, but the intricacies required for running a successful enterprise.

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